US vs. China

While ponder the screen of Bloomberg last several weeks, I felt that the current stock market is not for the ordinary investors. The mails below are my immediate feelings that was shared with my friends.

-----------------------------------------------------------------------------------------------------------

Let me share with you some of my feelings regarding the current geopolitical and financial situations. Something worth to mention and are listed in the following:

1) After dropping more than 2,000 points because of the sub-prime, the Hang Seng Index again today surged more than 1,000 points because the Chinese government approved mainlanders to buy Hong Kong stocks directly. (Though it drops back and now trading at 500 points higher than yesterday.)

2) The Chinese government has just announced recalls of American-made heart pace maker because of the failure to meet "the standard."

3) The United States government continues to broadcast to the world about the recall of Chinese products. New York Times for example continued to reveal new problems no matter it is toxic or life-threatening chemicals of all goods made in China.

What is happening? I suspect US and China are at war on trade market and the financial market.

When sub-prime saga exploded, I suspect the Goldman Sachs/Morgan Stanley, not to mention hedge fund, has shorted quite substantially all stocks (including Chinese stocks . Why am I keep chasing big names like Goldman Sachs and other big fund houses? Because I strongly believe they know the CDOs are toxic, they know the mortgage are sub-prime and they know investors will got burnt. But they still sell it as is it is A-graded. So they somehow can engineer a global plunge of all asset class using sub-prime as the prefect excuse. What they need is timing or a triggering event. Bear Stearns, which is their competitors, got hammered and they took action. Remaining is history. You may argue that one Global Equity Opportunity Fund from Goldman Sachs also folded up amid these sub-prime crisis. For me, I would say that is only a piece of cake among the huge asset base Goldman has acquired.

At the same time, US are doing everything they can to accuse made-in-China products. That is a perfect cover since some Chinese made products are genuinely toxic and life-threatening. I suspect this is the global macro strategic move to change the out-sourcing destination from China to other places like Vietnam or Mexico. Rationale is very simply. US government have started to contain China economically. That could be reflected by the anxiety expressed by an article The Return of Authoritarian Power written by Azar Gat in July/August issues. Sensing that the rise of China may one day offer an alternative path other than democracy to prosperity, the US government need to take action now.

Therefore, it comes down to the stock market. Chinese government may conclude that US is trying to attack China economically by trade issues and using sub-prime saga as an perfect cover to undermine all the Chinese-related stocks trading in Hong Kong. By forcing the H-shares lower, I suspect their grand plan is to force the A-share bubble to burst, no matter how remote that would be. And since many mainlanders have put their pension or savings into the A-share, the Chinese government cannot and would not let the stock market down. Therefore, I suspect the Chinese government has made a strategic move to support the Hong Kong market and the Chinese-related stocks trading in Hong Kong. Therefore, you would see the new measures to let mainlanders to buy Hong Kong stocks directly.

My conclusion is: Hong Kong stocks market are now the epicenter of the War between China and the United States. And small investors should avoid if you have no position and hold tight if you have stock position (Chinese stocks in particular.)